Most profitable niches

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#1
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Interested to hear what niches this community is involved in.
 

#2
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So I recently did a fairly complex analysis of my activity this year and here is what I found...

It's not the niche.

I apologize for the indirect answer, but "inclusive" and "value billing" has brought me the highest results per hour - in any niche.

Slightly more directly, "medium-complex" returns and client needs have provided the highest per hour, in my analysis.

Doing simple 1040 returns that seem to easy and headache-free, have been the least profitable, surprisingly.

The higher-end clients with complex situations and needs were also somewhat average.

It's the one's "in-the-middle-but-toward-the-complex-side" that have brought us the most profitable results.

So what I found was:

1) it's not the niche, it's the billing style (inclusive and value-based).
2) "Too simple" of a client is poor in any niche - too complex is OK but not great in any niche
 

#3
Webster  
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I'm not familiar with inclusive billing. Could you expand?
 

#4
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I think what ItDepends means by "inclusive" billing is a fee inclusive of specified services, but generally billed under value billing structure. Value billing can be applied to any service. I agree value billing is most profitable, hourly is least profitable.

While my "niche" is controllership with small businesses, the ones I have based fees with under value billing are by far the most profitable. I have another worth $50k/yr to me but it was based on hourly and before I ever adopted value billing. It is always profitable but some months more than others despite fixed scope, fixed fee agreement.

My most profitable tax clients are also under value billing. I also agree the most profitable tend to be the "middle of the road" variety, though I do have some that I charge $600-800 for and they take me under an hour to complete. I am going to be doing some strategic planning for implementation in 2022/2023, and this is definitely part of how I will do things.
 

#5
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Yes - fixed scope/fixed fee is EXACTLY what I mean by inclusive billing. It sounds a like nightmare, and it sometimes is - but I can gross $600 or $800 an hour with those, I have found.

Just for a quick background - I'm not a traditional CPA firm. I'm an EA with a retail tax return preparation factory. I'm like an H&R Block, but with a quality preparer (me) plus caring customer service.

My inclusive billing is getting $900 for a family return with a small schedule C business (instead of $550 "a la carte") by including free audit representation, IRS/state letter support, amended returns, a couple of estimated tax/tax planning check-ups mid year, SEP calculations for their CFP, copies of tax returns and documents on request, and 5 hours of free advice, support, help with Quickbooks, etc.

Add $400 for quarterly sales tax (Hawaii has a slightly more complicated version of a sales tax), add X more for s corp or X more for an s corp with payroll needed for the owner.

I bill these automatically monthly or quarterly unless it's the bare bones $900 per year sole prop.

Any kind of bookkeeping is always extra and by the hour. We wont even add up charity receipts, for example. Clients must fill out our worksheets.

So at first glance, it sounds like I'm giving away the store - but I'm SMASHING it with the clients that are under this model! Clients love it too because there is zero nickel and diming, as long as they fill out the worksheets. They know I'm their "go to" guy for when they need something and I won't hit them with a bill for a simple question.

I hardly hear form these clients after their tax return is done 90% of the time. Just a quick question here and there - which are enjoyable to answer for the most part. There are some drastic exceptions to this, however with needy clients. You know the types.

But do the math. Sign on about 600 clients at $1300, (but note that s corp clients with payroll and sales tax are about $4300 - no "books").

I want to do all of this for family clients with no business, but I have not pulled the trigger on a package or monthly billing for them. I'm not sure it will work.
 

#6
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Love hearing stories like yours, ItDepends. How often do you find yourself getting lost in the weeds with shoddy bookkeeping?
 

#7
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I would say...."sometimes". Yes, it's an issue.

Mostly "sniff test" items.

The P&L comes in like this:

Auto expenses $8144 ( this is an obvious complex problem within it's own)
Rent $4800 (does not rent a space - they mean biz use of home)
Utilities $3000 (home utilities)
Meals $18,514 (gross sales only $90,000)
Travel $8,015 (for a business that does not have a need for travel).
Payroll expense $24,000 (they mean a sole prop's owner's draw - which is not payroll and not an expense, of course)
Contract labor $18,000 (now we have to ask and educate about 1099s, for which we charge a la carte per the engagement agreement)

Etc.

So we call them on ALL of it. We do not file a shoddy schedule C. We un-shdoddy the client. We have simple canned explanations and worksheets for each issue.

As you know, most clients will become upset with the back and forth, and we don't like it either. But we explain that the IRS does not accept it this way (but the new client answers, "but I've been filing this way for years").

We are polite but very strict to make them fix these items so we can report them correctly.

I'll call them in during the off season for a "check-up" and teach them more about it. This works well because they think they have a great tax guy who teaches them, and it saves me time next tax season. If a client is struggling with QB online, we will log in and teach them some general things. It's part of the deal.

So.... yes, it happens and it's a PITA, but no more of a PITA than non-inclusive clients with the same issues.

Then there is the next argument, and that is, let's say they give me a P&L and I ask about and fix the "sniff test items". As far as I'm concerned, my responsibility ends there. If their material expense math for example is off by $10,000 - that's not my responsibility. I don't look at their bank statements, and since I'm not attesting to their P&L in any way, I don't feel I have to.

If a client is really messy, non-compliant, aggressive, or gives us grief over wanting to do it right, we immediately drop them. Doing your own books for a sole prop is not rocket science. It's a laziness and attitude problem. Adios.

If a client legitimately needs "bookkeeping services", we might take them (we have a dozen or so), or we refer them to a professional independent bookkeeper - though, we have trouble finding good ones in which to refer.
 

#8
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Thanks for the detailed response.

I've been thinking about the business model of taxes, payroll (and sales tax), and bookkeeping with a monthly retainer of $500-$2,500 depending on size/complexity. But the way you are doing things seems much more scalable (600 clients at $1300 as you mentioned before are amazing numbers).
 

#9
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Yeah - this is a very important topic for me lately, so I apologize if I'm hogging your thread.

What you are doing there is a little more sophisticated than what we do, but we have a few clients like this the model you are considering and it will work great in my opinion. I worked for a CPA who insisted that this is the way to go and he would NEVER bill by the hour.

Others will not agree and prefer by the hour billing.

I think the trick to make it work is to have a very detailed engagement agreement.

One problem I have is figuring a monthly amount for these "bigger" one-stop-shop service packages that INCLUDE bookkeeping. I've been charging $600/month for a typical practitioner (psychiatrist, small restaurant, contractor) with 2 employees, for example. "They" run the payroll and pay their own bills. they have perhaps 40 expense transactions on their statements each month - which is not very much.

Do you or does anyone think this is too cheap?
 

#10
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My experience is clients that are willing to adopt this model, particularly if they own a business, are willing to hire you to keep their books clean or fully maintain them. Example, I have a law firm client and the owner has specifically asked me to review the bookkeeping of one of his employees at least quarterly. Others are far more routine, sometimes as often as several times a week.

My existing engagement letters and contracts are at least 10 pages long. Tax engagements can be over 25 pages, though they also include required forms I need each year but never their SSN.

I generally work with individuals that fall into one of three billing fee ranges. Business entities are also often in one of 3-4 billing ranges, so I am looking to increase the cost, include more value via additional services or time I will not bill extra for, and that I am also generally aware such clients will see value in paying for but probably will not utilize to any significant extent.

I do not think I would have a structure as lenient as yours, but something "similar." While I know risk of audit is low, no way in hell I am offering it for free. Perhaps it could be an add-on service at a hefty fee using the same philosophy as insurance companies. There is a service offered by Intuit for individuals returns prepared by a firm, which includes audit and notice representation and ID theft protection. I do not like that they have their own team that will respond to such matters, as that is part of why clients stay with me--relationship and trust. But, I may very well find a source and provide them ID theft monitoring each year with a completed 1040.
 

#11
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Here's a thought to share...

One mistake I've made is waiting too long to raise prices on monthly-paying clients. Large increases to monthly clients are difficult letters to write. I keep my letters short, and matter of fact, but it's still hard to send them.
 

#12
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I specialize in medical and dental practices. I love the industry and the clients.
 


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